Reverse Mortgages are Just Another Marketing Scheme…

shopkeeper_202.jpg 

A “reverse” mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:

  • all at once, in a single lump sum of cash;
  • as a regular monthly cash advance;
  • as a “credit-line” account that lets you decide when and how much of your available cash is paid to you; or
  • as a combination of these payment methods.

No matter how this loan is paid out to you, you typically don’t have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.

On the surface it sounds too good to be true…that’s because it is. The problem with these products is that they assume the consumer will be thrifty with their lines of credit. Lenders say that people must simply be ‘prudent’ with their money and not get carried away with spending. The problem is nobody conducts themselves like that. You can’t trust the average starry-eyed American consumer. What usually happens is that reverse mortgages wind up becoming a titanic burden in a few short years because people who enter into them spend the equity on such necessities as vacations, SUV’s, and gambling. Furthermore, not all mortgage products are HUD approved so there is truly no recourse for borrowers or lenders in some situations.

With all the recent talk of lending reform, reverse mortgages have not been mentioned at all. Congress continues to ignore the fact that predatory corporations will try just about anything to write mortgage paper, even if that means bankrupting an unsuspecting middle class. No help there as usual. However, something does need to be said about the people who pursue these loans.

There is no free lunch America. If you buy an over-valued house that you ultimately cannot pay for, then you should be held accountable and suffer long-term consequences. This may be the only thing to wake consumers up to the reality of this economy. Recent legislation that proposes bailouts and guarantees for people who were caught in predatory ARMs is a slap in the face to responsible people like myself, who don’t look for the ‘quick fix’. I say let at least some of these people burn in the name of reeducating American consumers in the area of spending and finance.

Since when has it become a right for American consumers to heap their bad judgement on the government? Since when is acceptable for people to make consciously destructive short-term decisions in the name of luxury they cannot afford? Why is it that people in this country can’t see twenty years into the future and realize that what they are doing will drive them to eat dog food for dinner when they can’t work anymore because they refuse to save a nickel for retirement?

I contend that reverse mortgages are just another scam with an eye on propping up a  hopelessly debt-driven economy that will crumble in our lifetimes, as more and more people face a penniless retirement. Leaning o equity and needless spending is not the answer.     

Advertisements

Posted on September 26, 2007, in Economic Policy, Law, Politics, Social Policy and tagged , , , , , , , , . Bookmark the permalink. 25 Comments.

  1. While your article makes some interesting points, readers should consider our typical reverse mortgage client, and their situation.
    Our reverse mortgage borrowers do not spend their money on gambling, vacations, or luxuries. The money goes for wild and crazy things like FOOD, MEDICAL CARE, FIXING THE LEAKING ROOF, etc.

    Think about this: To get a reverse mortgage, you have to have a lot of equity in your home. This means that unless you had hundreds of thousands of dollars when you bought the home, most people got the equity by paying down a mortgage and NOT BORROWING MORE. Now, consider this; a borrower who has owned a home for a long time and not borrowed against it (which would describe a reverse mortgage applicant), is someone who has for a long time exercised extreme discipline in turning down numerous opportunities to borrow, gamble, take vacations and otherwise squander their equity.

    The points in your article would make perfect sense, if any significant number of reverse mortgage applicants truly wasted their proceeds, but it’s simply not true.

    I’m going to someone’s home in about an hour to have them sign reverse mortgage papers. Here’s the use of proceeds:

    1) pay off existing loan that they are having a hard time making payments on

    2) pay 30,000 in overdue medical bills not covered by insurance

    3) start receiving 710 per month in monthly reveerse mortgage payment income which will help them cover medication required. (heart medication)

    Sorry – no gambling or vacations in these folk’s budget!

  2. MJ "revoltingpawn"

    Joffrey Long…

    I understand what you are saying about a lot of people who take out reverse mortgages are not doing so because of bad spending habits. But I see bigger issues… Why do people need to take out loans for FOOD AND MEDICAL BILLS! One thing is people are living longer and they can’t find good paying jobs they may have had in the past. Maybe if we had a real health care system in this county people would not have to pay for medical expenses on credit cards. Now because of reverse mortgages it will be hard to pass the family house down to the children with a $20,000 lien on it. Reverse mortgages are not a solution but a symptom of bigger problems that we are trying to solve with another line of credit people don’t or shouldn’t need.

  3. Hi,

    Thanks for sharing this info about Reverse Mortgages. This could be very helpful to others.

  4. Joffrey,

    In an ideal lending world, your points are all valid, assuming most people are thrifty with their money, and at no point in my post did I suggest that ‘all’ consumers of these mortgage products are loose with their money. I’m sure the folks you are going to see this afternoon have the best of intentions. I’m also sure that all of those people that fell for the sucker ARM products had good intentions as well. However, they received an education didn’t they? I’m not worried about what people are told about reverse products (much of the things you list in your comment), I’m worried about what they are not told.

    The fact of the matter is that the AARP is at best cool or down right non-supportive of reverse mortgage products for the reasons I point out. There are enough people who are not disciplined who are spoiling the apple barrel, so to speak. However, the central argument against this type of product is more subtle than that and you actually defend that central argument with your comments about “leaky roofs” and “medical bills.”

    It seems to me that if seniors can’t afford medical bills or make large home repairs during old age, then maybe they weren’t very good at saving, and maybe they did over-consume, and maybe they didn’t plan so well for retirement expenses -now did they? Your clients appear to be part of this growing demographic.

    People don’t sign reverse mortgages after slaving away their entire lives because they want to, they do it because they have to. Unfortunately, they are conditioned to spend their life savings, not invest, and over-consume their retirement away. My issue with the whole situation is, that reverse lenders are all too willing to feed you another mortgage during retirement so you can owe on your home until they shovel dirt over you. Sure, you’re off the hook as a home owner, but who pays in the end – your kids or whoever that home is left to. What reverse lenders don’t talk about in mixed company is that all bets are off when you croak. All the interest will be paid, maybe not by the original signer, but by someone…you can be sure of that. Lenders aren’t doing the middle class any favors, they are simply creating the newest income stream for corporate America…generational debt. Where does it all end Joffrey? Can an average working Joe ever just own anything outright and retire securely? Is this how corporate America is going to get us through the retirement crisis that is just starting and will be full blown thirty years from now? No one is saving because no one can afford to. So what is the answer? Just borrow your way out of retirement bankruptcy? Just fluff off the debt to your kids? It’s unscrupulous, and grossly unfair. If you made the shit sandwich, you should have to eat it.

    I respectfully disagree with your support of such products.

  5. You have written a rather provocative, albeit uninformed article. While your claims relating to how people would spend their money are possible, they are not typical or problematic.

    Another colleague of mine has already written a response to you which speaks for the most common scenarios we face as Reverse Mortgage professionals. However, there is a bigger principle being overlooked, in my opinion.

    The problem is nobody conducts themselves like that. You can’t trust the average starry-eyed American consumer.

    Who are we to tell people how they can or cannot spend their money? If people want to spend their golden years taking vacations, God bless ’em! If they want to go to Vegas and play slots, why not? If they want the money to buy a car, go for it! It’s their money, it’s their decision.

    Your comments are typical of a person who says that people do not know how to spend their money. This smacks of “big government”. You don’t know how to spend your money, therefore, you can’t have it!

    There is no free lunch America. If you buy an over-valued house that you ultimately cannot pay for, then you should be held accountable and suffer long-term consequences.

    Reverse mortgage exists for people because they shouldn’t have to suffer, as you feel they should. These wonderful folks have typically spent their lives helping others, raising their kids, working multiple jobs to support their families. They have sacrificed. Many have adult children still living with them because of financial or even physical difficulties. It must be easy to see the world as black and white, but there are many circumstances which happen which make it impossible to see, “twenty years into the future”.

    It is my hope that you, nor anyone you love and care for, will ever experience a difficult financial situation. However, I’m glad that there are financial and human resources available to help people in need. I’m happy to be in a profession which empowers people to live the rest of their lives on their terms.

  6. Corey Matelli,

    Thank you for the response. Please read my response to Joffrey’s comment.

    Your comment smacks of the typical response I get from most people who oppose my position on this. Your say your intentions are to empower the consumer…let them spend…who are we to stop them?

    I never said to restrict people’s freedom, all I am saying is that these products are predatory. Why can’t lenders mass market VERBs or similar products for working people and businesses instead of generational debt? Am I asking too much here?

    And by the way, what gives these people the right to finance themselves into oblivion, much like the sucker ARM cosumers did, while the government bails them out in the name of saving the economy from a chaotic ‘correction’, while I’m forced to pay for their gaff with my tax dollars? I don’t see how this is my responsibility. Maybe you can explain it to me?

    Lastly, I appreciate your concern for my family but don’t worry, I teach them prudent financial management – crazy stuff like avoiding that “Loss Wages” vacation you spoke of and not buying a new car every two years, coupled with saving $200.00 per month for thirty years, will keep you out of trouble. Believe it or not its true. If you need a link to a retirement savings calculator so I might prove my point, I can send you the link.

    People get themselves in trouble through their own life decisions, it is not the United States government or my responsibility to get them out. Is that the big government you speak of?

  7. Sure, you’re off the hook as a home owner, but who pays in the end – your kids or whoever that home is left to. What reverse lenders don’t talk about in mixed company is that all bets are off when you croak. All the interest will be paid, maybe not by the original signer, but by someone

    Actually Matthew, not by “someone”, but by “something”. Not a single penny will come from anyone’s pocket. The home pays the reverse mortgage. Why do you feel kids are entitled to an inheritance? Homeowners are not obligated to leave an inheritance.

    With that being said, of course, people love to leave something behind for their loved ones. They would prefer that. But I have found that most adult children would prefer their parents live the rest of their lives in financial comfort and peace of mind. They would prefer their parents spend every dime of their “inheritance” if it means having their parents live the next 20 years with financial independence.

    I’m also a bit perplexed by your assertion that AARP is “down right non supportive” of reverse mortgage. AARP actually refers its members to reverse mortgage lenders, and offers free information and guidance when it comes to assisting seniors in pursuing such loans.

    You obviously do not agree with reverse mortgages, and that’s ok. But your argument against them should be based in fact rather than rhetoric.

  8. it is not the United States government or my responsibility to get them out.

    Perhaps you could enlighten me and everyone else on exactly how the government and/or you are somehow responsible or even slightly inconvenienced by someone getting a reverse mortgage.

    I believe I speak for most reverse mortgage specialists when I say that our objective is to educate people on their financial options. I am not a salesman. We do not coerce people or hide facts from them. In fact, prospective borrowers must go through independent counseling ensuring they know all the facts and have considered all their options.

    When a person or couple decide to obtain a reverse mortgage, they do so with their eyes wide open. You call reverse mortgages “predatory”. With all the checks and balances, with all the required consumer protection elements in place, with the full endoresement of the government and senior advocacy entities, one can hardly be justified in calling reverse mortgages predatory.

    Again, if you don’t personally like reverse mortgages, that’s absolutely fine. But try to refrain from all the judgment you heap upon people who choose the vehicle of reverse mortgage to enhance their lives. All the woulda, shoulda couldas in the world don’t change the present, and they don’t have to condemn people to the bleak and hopeless place you feel they deserve.

  9. Corey,

    Are you kidding? The home pays for the note while seniors are alive Corey. Once their dead, who pays for the rest of the note???? Your heirs pay. They pay all the principle and interest. You mean to say you are endorsing a system that totally cripples one’s ability to help their kid’s out after their gone – or are you just selfish? Boy, you have shown your colors my friend. What I get from you is, screw everyone. Essentially you’re saying, I’ll do what I want while I’m alive, spend my money as I wish, and then when I’m dead, f*ck my kids, so some asshole mortgage company can satisfy it’s stock holders. I sure hope you’re not a dad. Judging by your comments, I have to guess not.

    In my world, you live for your kids and you make sure they get farther than you did…it’s in the rules Corey. Of course I want to see my mom live to 100 and be healthy and happy while she’s doing it, that’s why she is set up with a widow’s pension from my deceased father, social security and a mutual fund she can draw from.

    I just don’t see your answer of selffish as the best way out.

    As for the AARP, they absolutely do not endorse reverse products, they simply provide in depth information. In fact this text is right from their website warning people about equity issues and getting caught in the trap of leaving less to your heirs,

    “Since a reverse mortgage uses the equity in your home, you need to consider your options carefully. For instance, if your home does not continue to grow in value after you take out a reverse mortgage, you may have less of an estate to leave your heirs.”

    Considering housing sales are down for the 13th straight month, this advice seems relevent. What do you think? Or are you still taking it all with you?

    Before you accuse me of basing my arguments on rhetoric, you should do some light research.

  10. Corey,

    The U.S. Congress is considering legislation right now to bail out people from the predatory ARM mess. Obviously you’re a mortgage broker so you must know what I’m talking about. If that bail-out plan is passed, you and I are paying for it. Don’t you get it?

    MJ’s comment has it right. NO GENERATIONAL DEBT!

  11. MJ "revoltingpawn"

    I cant believe that with recent posts in regards to Jenna Jameson in politics and getting government out of marriage that the subject of reverse mortgages is going to break our comment record. I almost didn’t even bother to read this post by my partner since banking makes my eyes glaze over but the comments have been entertaining to say the least.

    Sounds like we have couple of reverse mortgage sellers as readers…

  12. Are you kidding? The home pays for the note while seniors are alive Corey. Once their dead, who pays for the rest of the note???? Your heirs pay. They pay all the principle and interest. You mean to say you are endorsing a system that totally cripples one’s ability to help their kid’s out after their gone – or are you just selfish? Boy, you have shown your colors my friend.</i?

    Thank you for, though not intentionally, admitting you don’t know how reverse mortgages work. I’ll deconstruct your opening paragraph with helpful information.

    Once their dead, who pays for the rest of the note????

    Great question. There are options available to the heirs. None of which requires them to pay a single dime out-of-pocket. First, they may sell the home. Here’s something you probably don’t know. I’m going to use hypothetical round numbers for the sake of discussion. If the home is valued at $300,000, yet the balance of the reverse mortgage, including interest, is say…$400,000, the lesser amount is paid back by the sale of the home. That’s right…the lesser amount. Can you name another loan that guarantees that?

    Now, let’s say the home value is $300,000 and the balance of the loan is $200,000. The heirs can sell the home and divide up what’s left over.

    Here’s another option. The heirs may decide to keep the home. They can simply secure their own financing for what is owed on the reverse mortgage.

    Keeping the home or selling it are options left to the heirs with or without a reverse mortgage. Whether money is owed for a reverse mortgage or a “conventional” mortgage, money from the sale of the home, or refinancing is going to be necessary.

    You mean to say you are endorsing a system that totally cripples one’s ability to help their kid’s out after their gone

    No, I mean to say that I endorse a system that totally enables one’s ability to help their kids while they’re alive! Many reverse mortgage borrowers use the funds to give to their kids, and even grandchildren to assist them in buying a home, college educations and such. One of my clients used the funds from her reverse mortgage to purchase a van with a lift for her grandson who is confined to a wheelchair. Perhaps you would prefer the family wait until she dies, which could be decades from now?

    I won’t go into the rest of what you said because you put words in my mouth I never said, and I certainly won’t dignify the vulgar language and tone you have used.

    If you consider the senior to be “selfish” in accessing their equity on their home, then yeah, maybe I am suggesting that. Perhaps it’s time for the adult children to stop looking at their parents as human ATMs and start carving a life out for themselves.

    However, if you read my previous responses thoroughly, you’ll see that I said that most adult children actually encourage their parents to seek reverse mortgages. Many adult children are not in a financial or physical position to support their parents with money and/or housing. I certainly encourage my clients to speak to their kids and financial advisors. I even speak to them directly, myself.

    I appreciate your passion, but it’s my hope that we can discuss this without personal attacks and profanity. I would also appreciate it if you would not attempt to read between the lines and thus, misinterpret the words I actually used when you say, “What I get from you is”. Nothing I have said comes anywhere near the absurd claims you have attributed to me. If so, feel free to quote me, in context, as I have done with your comments.

    I will be the first to say that reverse mortgages are not for everyone. They are, however, a wonderful tool for a great many people. Fortunately for your mom, she will likely never need one. That is wonderful! Not everyone is as fortunate as she, and a reverse mortgage may very well be a tremendous option for them. I have yet to come across a single client or loved one who has later regretted their decision.

    Have a great day!

  13. The U.S. Congress is considering legislation right now to bail out people from the predatory ARM mess. Obviously you’re a mortgage broker so you must know what I’m talking about. If that bail-out plan is passed, you and I are paying for it. Don’t you get it?

    MJ’s comment has it right. NO GENERATIONAL DEBT!

    The “bail-out” plan to which you’re referring has nothing to do with any problems in the reverse mortgage industry. Also, I thought you might be interested to know that I’m not a mortgage broker. I work specifically and exclusively with reverse mortgages.

    Finally, in response to your closing statement, reverse mortgage is not “generational debt” any more than a homeowner passing away with an outstanding mortgage balance. Heirs will not have to pay a single penny out-of-pocket to pay their parents’ reverse mortgage debt. Reverse mortgages are non-recourse loans. If more money is owed than the house can get in a fair market sale, lenders cannot go after heirs or the estate for more money. We simply eat the loss.

    How many “predators” do that?

  14. MJ, you say: The problem with these products is that assume the consumer will be thrifty with their lines of credit. Lenders say that people must simply be ‘prudent’ with their money and not get carried away with spending. The problem is nobody conducts themselves like that. You can’t trust the average starry-eyed American consumer.

    Let me first comment on this part. I agree with one reply in saying who are we to tell anyone how, or where to spend their money. Thats socialism. Also you assume by saying that, that the majority of Americas are simple-minded and are easily dazzled by bright flashing lights and colors. What, do all of our brain functions end after we’re two years old? That comment is ignorant at best and condecending at its core.

    MJ says: What usually happens is that reverse mortgages wind up becoming a titanic burden in a few short years because people who enter into them spend the equity on such necessities as vacations, SUV’s, and gambling. Furthermore, few reverse mortgage products are HUD approved so there is truly no recourse for borrowers or lenders.

    Next rebuttal: A reverse mortgage is never a burden to anyone for many of the reasons stated in above replies. It is a non-recourse loan. Meaning you can never owe more than it is worth. In fact many times reverse mortgages are used to ease burdens of paying medical bills, purchasing life-saving prescriptions and did you think of this: You have a choice, pay for your mother to stay in a nursing home, or getting a reverse mortgage that will pay for long-term in-home health care for life. Now your mom gets to stay in her home and be taken care of by a personal elder care nurse and never leave home.
    She may also choose to buy life insurance policies for you, your kids, or herself. Maybe she’ll want to pay for your kids education, or maybe she’ll want to help you put a downpayment on your house. These are all reasons clients have done a reverse mortgage. Who is that burdening?
    You also say that “few reverse mortgages are HUD approved.” Thats just plain wrong. Do your research. Fact is 90-95% of all reverse mortgage loans are the Home Equity Conversion Mortgage (HECM), an FHA program insured by HUD. Get your facts.

    MJ Says: With all the recent talk of lending reform, reverse mortgages have not been mentioned at all. Congress continues to ignore the fact that predatory corporations will try just about anything to write mortgage paper, even if that means bankrupting an unsuspecting middle class.

    Rebuttal: In congress they are talking of raising the FHA lending limit, this includes the limit on HECM loans. There is also talk ot lowering the origination fee to 1.5% instead of 2%, so your comment on congress not discussing reverse is again just plain wrong. Get your facts.
    No one can become bankrupt with this program. As a matter of fact HECMs have been used to bail seniors out of bankruptcy and foreclosure. Escrow accounts can even be created to pay the taxes and insurance out of the proceeds.
    You also make mention in a response that the AARP does not support this program. Then why do they have a section of their Web site devoted to this program? While they would like to see the origination fee lowered, the AARP absolutely DOES support reverse mortgages and even offer counseling for members seeking them.

    You really ought to do your homework before you spout off a social commentary masked as fact.

  15. Corey,

    No de-construction of my opening statement needed. My statement is lucid and accurate. Let me simplify for you – heirs usually get nothing. Plain and simple. The AARP warns against that potential outcome, why can’t you just admit that this is entirely possible?

    While you were busy trying to unsucessfully critically analyze my arguments against, you conveniently fail to mention about ten other chracteristics regarding reverse products.

    What reverse lenders don’t tell you is that the front load is very high. Reverse mortgages are very profitable to write in the short term because of the front loading. Reverse mortgage lenders make money the old-fashioned way too through higher interest rates, origination fees and points. The interest rate varies according to the market but can be as high as 10% in some areas. Closing costs are also significantly higher with reverse mortgages. In addition, borrowers continue to be responsible for real estate taxes, conventional homeowners insurance and home repairs, and have the added burden of paying for mortgage insurance.

    Why would borrowers have to pay mortgage insurance? That insurance is required for regular mortgages if borrowers don’t have a large enough down payment, and its purpose is to protect lenders in the event of a default. With a reverse mortgage, there’s no such risk to lenders so why do seniors pay? They pay because it’s the only way for lenders to earn money before the borrower dies unless they live to be 102 years old.

    You have also grossly misinterpreted my statement about heirs. What I am suggesting is that they go empty handed. Heirs do not eat mortgage costs, they lose out on ownership of the asset, while the lender gets to sell if need be at full market value. And why do you view it as okay for for mortgage companies to eat unpaid loans anyways? Are you hoping for another ARM -like credit crunch as lending capital drys up while reverse lenders take it in the shorts? That is short-sighted and bad for the economy. In addition, Sallie Mae is pushing products right now that incllude clauses that would allow the lender to go after the estate for unpaid equity and interest. Read the financials Corey, it’s out there.

    Depending on where you live, proceeds from a reverse loan could prove a barrier to qualifying for Medicaid, which counts loan proceeds as an asset.

    Terms of many reverse mortgages knock homeowners out of their homes after a period of absence, which varies from lender to lender. Some reverse mortgages require the full loan balance plus accrued interest be repaid when the house is vacated by the owner for a specified period of time — like a prolonged, but temporary, nursing home visit.

    I could go on but I see your intent here is to go blow for blow on my comments. At the very least, I see just as many pros as cons here.

    Please don’t things personally. My passion and ‘some profanity’ was not at aimed at you. You have a strong position and I appreciate that. Children do look at their parents as human ATMs and lack in the area of financial responsibility. What I oppose is that the lending industry developes ever new ways to load the middle class and our financial sector with debt. It is afoot everywhere from reverse mortgages, to predatory ARMs, to predatory student loans to loans on your next paycheck. I oppose the entire idea of needless forward spending.

    You are correct on the government bail-out. No reverse products are involved – I just don’t want to wait until they do become an issue, as I fear they will.

    Again, no hard feelings here, and I hope likewise from you.

  16. Well, thanks for teeing things up for me once again. I’ll take each of your misunderstandings one-by-one:

    heirs usually get nothing. Plain and simple. The AARP warns against that potential outcome, why can’t you just admit that this is entirely possible?

    Actually, heirs usually still get an inheritance. At no time did I say it wasn’t a possibility. In fact, in one hypothetical scenario that I offered, I indicated that when the equity is gone, the heir(s) may keep the house and secure their own financing for the fair market value of the home, or they may sell the home and walk away no worse than they were before. Absoutely it is a possibility. You make it sound as if this is never disclosed. We provide an amortization schedule to every borrower showing exactly how the numbers work through their 100th birthday. In most cases, with homes appreciating, there would still be retained equity should the borrower live to 100 and beyond. You interpret the blurb on the AARP website as a “warning”. That’s fine. But this fact is disclosed and talked about in every single consultation I give. It’s not hidden, as you continue to allege.

    What reverse lenders don’t tell you is that the front load is very high. Reverse mortgages are very profitable to write in the short term because of the front loading. Reverse mortgage lenders make money the old-fashioned way too through higher interest rates, origination fees and points. The interest rate varies according to the market but can be as high as 10% in some areas.

    Once again, your bias against reverse mortgage exposes your ignorance. Not only DO reverse mortgage lenders disclose the frontloading of interest and fees, it’s given to them in writing on a form called TALC, (Total Annual Loan Cost). Borrowers receive a copy of this document and even sign it when it has been explained to them in detail. I have actually discouraged would-be borrowers from obtaining a reverse mortgage if they do not intend to remain in the home at least 5 years after getting it. Any ethical Reverse Mortgage Specialist (RMS) would do exactly the same thing. Additionally, interest rates do not vary by market. The only figure which presently varies by county is the lending limit. Presently, the maximum lending limit for an FHA Reverse Mortgage is $362,790. This lending limit will likely increase soon, and also likely be a nationwide limit, rather than determined by county. Interest rates are determined by LIBOR, (London InterBank Offered Rate). A margin is set for each type of loan. Presently, rates range from just over 5% to the mid 8s depending on the type of loan, including Jumbo proprietary loans and fixed rate loans.

    In addition, borrowers continue to be responsible for real estate taxes, conventional homeowners insurance and home repairs, and have the added burden of paying for mortgage insurance.

    Of course they do. Why wouldn’t they continue to pay taxes, insurance and home repairs? They still own the home. Borrowers do have the option to set aside an escrow account to pay their property taxes and insurance directly from the loan. Regarding the mortgage insurance, this is paid to FHA, not the lender. The government charges 2% of the lending limit for insurance, assuring the borrower that if they ever owe more than their home value, they will only pay the lesser amount.

    They pay because it’s the only way for lenders to earn money before the borrower dies unless they live to be 102 years old.

    Once again, exposing your ignorance. Really, get your facts first before you speak. As Abraham Lincoln once said, “better to remain quiet and be thought a fool than to speak and remove all doubt.”

    Heirs do not eat mortgage costs, they lose out on ownership of the asset, while the lender gets to sell if need be at full market value.

    Ahh, another myth to debunk! Heirs do not lose out on ownership. As I stated more than once previously, heirs may keep the home by securing financing for the debt on the home. In many cases, it’s only a fraction of the market value of the home. You seem to overlook the fact that during the life of the reverse mortgage, the home continues to appreciate. In some cases, it appreciates at a higher rate than the interest on the reverse mortgage! When you say “the lender gets to sell”, you’re completely wrong. The title to the home never changes. The lender has no ownership stake in the house whatsoever. The borrower may sell the home any time they like, and if they have a trust, they completely control what happens to the home after they pass. The lender is only entitled to be paid back when the loan is due, not unlike any other kind of home loan.

    In addition, Sallie Mae is pushing products right now that incllude clauses that would allow the lender to go after the estate for unpaid equity and interest. Read the financials Corey, it’s out there.

    At the risk of sounding like a broken record, reverse mortgages are non recourse loans. The borrowers and heirs can never owe more than the value of the home. Ever.

    Depending on where you live, proceeds from a reverse loan could prove a barrier to qualifying for Medicaid, which counts loan proceeds as an asset.

    Most borrowers opt to leave their money in a line of credit, receiving either monthly payments, or simply accessing the LOC when they want for whatever they want. If the borrower takes out a significant amount of money and then puts it in their bank account, yes, it may affect their medical benefits which require them to spend down all their assets in order to qualify. Funds left in the LOC do not count as income as it has not yet been borrowed. So while they may have hundreds of thousands of dollars available to them, it doesn’t affect their Medicaid at all.

    Terms of many reverse mortgages knock homeowners out of their homes after a period of absence, which varies from lender to lender. Some reverse mortgages require the full loan balance plus accrued interest be repaid when the house is vacated by the owner for a specified period of time — like a prolonged, but temporary, nursing home visit.

    “knock”??? Ok, getting a little melodramatic here. A stipulation for reverse mortgages, ALL reverse mortgages, (not varied lender by lender as you allege), is that you be a permanent resident of the home. What is permanent? You can be out of your home as long as a full year. That’s not unreasonable, is it?

    I appreciate your willingness to discuss the issues. You’ll see that every single one of your assertions has either been entirely incorrect, or at least partially. I hope you are open to the truth about reverse mortgage. You have leveled several accusations about “what reverse mortgage lenders won’t tell you”, when that is absolutely false. Every single issue you have raised is disclosed in writing to each and every borrower, and also covered with the required independant counseling. Your bias against reverse mortgage is entirely emotional and not based on facts. You seem to think lenders are making victims of people in need, when in fact, we’re assisting them.

    If you’re unhappy with reverse mortgages, come up with something better. Come up with a source of tax-free income which doesn’t require a monthly payment. Come up with a loan which guarantees the homeowner can keep their home without fear of foreclosure. Come up with a loan which gives the borrower the flexibility of getting monthly checks, a lump sum, a line of credit, or any combination of the three. While you’re at it, come up with a loan which still gives the borrower the peace of mind that their home remains in their name, AND they will likely have equity remaining in their home for their heirs. Speaking of that, come up with one that if, in the “worst” case scenario, they use up all their equity, they will only have to pay the fair market value of the home, even if their loan balance exceeds it!

    When you do all those things, please contact me because I can’t wait to help these wonderful people with something even better than the reverse mortgage!

  17. Corey,

    Your continued stubborness on this issue is puzzling, yet predictable. You have responded again and again by reprinting statements in my past comments and then purporting that your opinion is fact in response to those statements, altering your argument as you move along, and simply ignoring many of my responses. You’re blending those opinions with some fact and some fiction. Fine. Let us turn to hard documentation shall we?

    You stated in a prior comment that “There are options available to the heirs. None of which requires them to pay a single dime out-of-pocket.” First you said they would never pay out-of-pocket, now you say they have an option to never pay. Which is it?

    This is a reprint from a Federal Trade Commission legal brochure…

    “Because you retain title to your home with an reverse mortgage, you also remain responsible for taxes, repairs, and maintenance. Depending on the plan you select, your reverse mortgage becomes due with interest either when you permanently move, sell your home, die, or reach the end of the pre-selected loan term. The lender does not take title to your home when you die, but your heirs in many cases must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage (if the heirs are eligible) or by using the proceeds from the sale of your home.”

    There are sevral sites on the web that repeat this statement as well.

    You stated, “Once again, your bias against reverse mortgage exposes your ignorance. Not only DO reverse mortgage lenders disclose the frontloading of interest and fees, it’s given to them in writing on a form called TALC, (Total Annual Loan Cost). Borrowers receive a copy of this document and even sign it when it has been explained to them in detail.”

    True enough, the Truth in Lending Act requires this. The fact remains that there are unethical lenders (happy to hear you’re not one of them) that DO NOT DISCLOSE ALL OF THE FRONT LOADED COSTS. Again, let us turn to the documented facts…

    Reprinted from the Reverse Mortgage Times, Fall 2007…

    “We have found that many unscrupulous lenders are plugging in inaccurate interest rates in their online calculators causing inflated cash-out figures. Remember that the interest rate is the same no matter which lender a senior chooses…so do not shop for a lender based on the results of their online calculator.” This article also speaks to loan appreciation scams.

    There are sevral sites on the web that repeat this statement also.

    So much for TALC and truth in lending huh?

    You stated, “Once again, exposing your ignorance. Really, get your facts first before you speak. As Abraham Lincoln once said, “better to remain quiet and be thought a fool than to speak and remove all doubt.”

    And how is that statement relevent? I simply made a sarcastic comment about the potential age of a borrower at the end of the loan term. If you couldn’t recognize that, then you need to develop a grander sense of humor. And since you like to quote Lincoln, I would like to retort if I might. Lincoln also said, “I have the Confederacy before me and the bankers behind me, and for America, I fear the bankers most.”

    By the way, your Lincoln quote was actually said by Mark Twain…just a heads up.

    At least you conceded an inch on the Medicaid issue. Enough said there.

    In closing, the “Skinny” from CNN Money…

    For all of their convenience, a reverse mortgage still may not be the best solution for tapping your home’s equity.

    If you’re only going to be in your home a couple of years, the cost of this loan is very, very high. Initial costs for a $200,000 home easily could add up to $10,000.

    Up-front costs for the HECM include:

    Origination fee equal to $2,000 or 2 percent of the loan limit, whichever is greater.

    Mortgage insurance premium equal to 2 percent of the maximum claim amount or home value, whichever is less. (This up-front insurance is waived only if the all of the loan is used to pay for long-term care insurance.) There also is an ongoing annual premium equal to 0.5 percent of the loan balance.

    Other closing costs, such as title insurance, and fees for appraisal, credit reporting, escrow, document preparation and recording. Depending on the size of the loan, these costs could exceed $2,000.

    Servicing set-aside fee. This is money taken out up-front to the projected monthly costs of servicing a loan. According to the National Reverse Mortgage Lenders Association, this fee can amount to several thousand dollars.

    The other major problem with reverse mortgages, is that because you don’t pay down your debt until you sell, move or die, the interest compounds quite a bit over time.

    Mandatory mortgage insurance ensures that you (or your heirs) don’t end up owing more than the house is worth. But it’s entirely possible to drain all or most of your home’s equity.

    Some people decide that staying in their home is more valuable than they had even realized,others decide it’s better to just move.

    Corey, you are a self-admitted reverse mortgage lender specializing only in these products, and have defended all aspects of reverse products, yielding little ground. You do not meet the standard of unbiased opinion on this issue. Your vigourous defense of these products is understandable…they are your livlihood. I, on the other hand, am a college instructor by trade. I have no agenda and I am not blindly anti-reverse mortgage as you suggest. I simply don’t want to see seniors get burned. You ask for a better solution? I already offered one in a prior comment in the form of publicly backed VERBs that do not depend on home equity and consequently encourage debt. It is no more costly for the government than backing FHA reverse products and would render many of the issues I oppose, moot.

    I urge anyone reading this blog or these comments to contact the following agencies for unvarnished information.

    AARP Foundation
    601 E Street, NW
    Washington, DC 20049
    1-800-209-8085
    http://www.aarp.org/revmort/list

    U. S. Department of Housing and Urban Development (HUD)
    451 7th Street, SW
    Washington, DC 20410
    1-888-466-3487
    http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm

    Federal Trade Commission
    Consumer Response Center
    600 Pennsylvania Avenue, NW
    Washington, DC 20580
    http://www.ftc.gov/bcp/menus/consumer/credit.shtm

    Click on “Mortgages & Your Home” 1-877-FTC-HELP (1-877-382-4357)

    The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit http://www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

    This will be my last comment on this post in response to Corey.

  18. Well, I was hoping this matter would be done, but you asked some questions which seem to require yet another response. So, here goes.

    You stated in a prior comment that “There are options available to the heirs. None of which requires them to pay a single dime out-of-pocket.” First you said they would never pay out-of-pocket, now you say they have an option to never pay. Which is it?

    At no time did I say there was an option to “never pay”. If I said it, feel free to copy-and-paste it, in context. I said heirs would never have to pay out-of-pocket. The reverse mortgage will be paid, but that does not mean that heirs will have to fork out their own money, and it also doesn’t mean that heirs will necessarily walk away empty-handed. And I appreciate you doing your homework because the excerpt you took from the FTC completely echoes exactly what I have said a number of different times.

    So much for TALC and truth in lending huh?

    Well yeah…there are “unscrupulous” lenders. There are also unscrupulous priests, dentists, attorneys, politicians, mechanics, used car salesmen, CPAs…the list is endless. Because some people are crooks doesn’t mean that the vast majority of people who perform ethically are part of some vast conspiracy to rip people off. Be real!

    Corey, you are a self-admitted reverse mortgage lender specializing only in these products, and have defended all aspects of reverse products, yielding little ground. You do not meet the standard of unbiased opinion on this issue.

    Correction, I have yielded no ground as there is nothing to yield. I never claimed to be “unbiased”, nor was it ever made a requirement to be such in order to participate in this discussion. I do meet the standard of reverse mortgage expert. I have presented myself as such, and acted within those boundaries from the outset.

    Like you, I don’t want to see seniors get burned, either. This is precisely why I lay all the cards out on the table, face up. I withhold nothing. Were I to do so, I am confident it would be brought to the surface by the independent counselors. By the way, since you have stated that AARP does not support reverse mortgages, did you know that they do offer the independent counsel of which I speak?

    Probably not.

    Anyway, I digress. I will repeat something I said many hours ago. Reverse mortgages are not for everyone. Heck, they’re not even the best business decision or option. However, not everyone is looking to make the best business decision. For some, their only objective is to be able to stay in their homes. The very home in which they raised their children. The very home which holds so many important memories. They’ve seen their neighborhoods evolve over the years. Every inch of their block holds a story. For some, they are in real danger of losing this very home which represents so much more than a piece on a Monopoly board. For them, their home is a part of their family. It’s part of them! All they want to do is live the rest of their life in that home without pressure, without being a burden to their children…with dignity.

    Reverse mortgage, like it or not, is an option. Is it their only one? Absolutely not. No one ever said it was. I certainly never did.

    I echo your exhortation for people to do some research. You are not the only one who has deep misconceptions about reverse mortgage. Others have responded to your inaccuracies in this thread, not just me. You call me stubborn. Maybe I am. I am stubborn when I see people ignorantly making blanket indictments against something they clearly know very little about. The other posters and I have gone to great lengths to take your comments and refute them with facts. At no time have you acknowledged those corrections with anything other than the deft footwork of a matador. OLE’!

    I wish you the very best. Thank you for giving me this forum to set the record straight as to what a reverse mortgage is, and what it isn’t. As with anything, people should be allowed to make their own decision for themselves. If and when something better comes along, I’m sure it will overtake the reverse mortgage in popularity and success. Until then, I will continue to educate people on the truth, and let them decide for themselves what is in their best interest.

    God bless.

  19. I could not agree with you less, reverse mortgages are not a marketing scheme designed for people to fall deeper in debt, they are a government and AARP designed product for people over the age of 62 that have equity built up in their house. The money can be used as a credit line, to receive monthly payments or a combination of the two.

    Plus, the debt will NEVER excede the value of the house. To be fair, the closing costs are expensive but that is because of the work involved and also the insurance that is mandatory (because it covers the potential loss once the house is put up for sale).

    As we age and are living longer, there are many misconceptions regarding wills and estates and one thing that many people do not realize is that government welfare programs such as medicaid supercede wills and estates when they come calling for money owed and oh yes, there is now a five year lookback on all people going into medicaid so if 4 and a half years ago you gave your children everything including the house, they now have to give it back. One way to protect against this is with long term health care. However, LTHC is very expensive and most people do not have the 3-5K per year to afford it. A reverse mortgage is perfect to help them purchase it.

    Like ANYTHING, reverse mortgages can be used for good or bad and it does fall to the individual to watch what they do. Are they the only option, no, but they are a great option for a great many people that are living longer or realize they are not prepared for their golden years.

  20. Mr. Matelli is clearly uninformed on the basic facets of reverse mortgages, and I will not dwell on his assertion, among others,that after death of last resident someone must pay, which is put to rest by simply becoming informed that this is flat out not true.

    I will however comment on his assertions that seniors cannot be trusted or relied upon to have the discipline to manage their assets after spending a displined lifetime acquiring them.

    This assertion of lack of discipline is often used by sellers of whole life insurance, which is one of the worlds worst investments compared to term life.

    Insurance folks will admit this is financially accurate, and then assert that term does not perform as well as whole life because people lack the discipline to save and invest the difference in premiums and, as is the case here, assert that babysitting and handholding is needed to save citizens from their weakness of character. This is what lawyers refer to as a make weight argument, meaning it lacks factual support.

  21. Eli,

    Someone will pay eventually. This is America after all. Debts don’t just evaporate. If heirs choose not to sell the home to pay debt or can’t, then someone will or the FHA insurance picks up the tab. I believe this is the way it works. But to claim “no one” pays is just absurd. You mean to say kinder, gentler banks are in the reverse mortgage business to lose money in the end. I don’t think so.

  22. Eli says: Mr. Matelli is clearly uninformed on the basic facets of reverse mortgages, and I will not dwell on his assertion, among others,that after death of last resident someone must pay, which is put to rest by simply becoming informed that this is flat out not true.

    I will however comment on his assertions that seniors cannot be trusted or relied upon to have the discipline to manage their assets after spending a displined lifetime acquiring them.

    Perhaps you have me confused with someone else. At no time did I say or imply that seniors cannot be “trusted or relied upon” regarding how they manage their money. Those were the claims of MJ, the host of this blog.

    To clarify, I did say that in the event the borrower(s) die and the heirs are left with the decision on what to do with the home and the remaining debt, they may A) refinance the debt and keep the home, or B) sell the home. If they choose B, if there is money left over after the sale of the home and the payoff of the RM, the heirs may be entitled to the surplus according to the wishes of the homeowners. Or, in the “worst” case scenario, if the equity has been tapped out by the RM, the sale of the home will satisfy the RM in full, even if there is a higher balance than the fair market value of the home. The heir(s) will then walk away no worse than when they were before. It’s a non-recourse loan, so the heirs will never lose money out-of-pocket due to their parents getting a reverse mortgage.

    I hope that clears that up, once and for all.

    Have a great day.

  23. At the outset, reverse mortgages seem to be too good to be true. One may ask, is this really true? Since I am no mortgage specialist, I cannot take a stand on whether or not this is “predatory”, as what the author of the article suggests. On a positive note, however, I believe presenting a strong stand on this, though many would object and not really agree of this position, creates healthy discussion which benefits anyone who is interested in mortgages.

    Perhaps it might also be useful if concerned individuals post controversial stands on California home loan mortgage refinance. More information regarding this is found in: http://www.whataboutloans.com/state/mortgage/california.html

  1. Pingback: Mortgage Discussion Blog » Late breaking news

  2. Pingback: Mortgage » Reverse Mortgages are Just Another Marketing Scheme…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: